Atea ASA

Welcome to the Q2 presentation of the Atea numbers here in downtown and sunny, I should say, Oslo. The world is becoming more and more influenced by technology every day. But it's also becoming more complex and unpredictable as we can all see around us. And of course, so also for Atea. The numbers. Gross sales came in about where we expected it, at 14.7 billion. EBIT came in at 243, somewhat below what we expected. The cash flow was really strong in this quarter, as Robert alluded to in the Q1 presentation, and came in at 665 million. some 350 million higher than same quarter last year. Cash is king, as we can all see that interest rates will be kept higher for longer. And we are competing against companies that doesn't have as strong a balance sheet as we do. But as always, I will leave it to Robert to give you all the details.

Thank you, Steiner. As Steiner mentioned, ATEA reported gross sales of $14.7 billion last year in Q1 and Q2 2024 in line with last year. And this is compared with a very strong sales period last year. Net revenue, according to IFRS, was 8.4 billion Norwegian krona, down 5.5% from last year, or 4.5% in constant currency. If we look at the last two years by quarter, Attea had a period of abnormally high revenue growth from Q3 2022 to Q2 2023. During this time, Attea's revenue grew organically at a rate of 22%. This was a period after the COVID pandemic when both supply and demand trends were unusually favorable for Atea, particularly within hardware. Since the second half of 2023, these short-term tailwinds have faded and deliveries have returned to more normal volumes. As a result, we've seen a negative revenue trend during the last four quarters compared with the exceptionally high growth rates last year. We also see that Q2 2024 is the last quarter of very challenging year-over-year comparables. And we expect that Attea will return to higher levels of growth from next quarter. In Q2 2024, the main drag on Attea's revenue performance was in networking hardware. Networking was the last product category to resolve industry-wide shortages in electronics components at the end of the COVID pandemic. In Q2 last year, supply chain constraints of networking equipment eased, and Attea was able to ship a large backlog of orders to its customers. As a result, Attea nearly doubled its shipments of networking hardware compared to the previous year. In Q2 2024, shipments of networking equipment returned to more normal levels, moderately above the volumes of two years before. For this reason, hardware revenue fell by 8.3% from last year, entirely due to lower networking shipments. Sales of other hardware categories grew from last year. On the other hand, software revenue grew by 14.8% from last year, with strong growth in sales of cloud subscriptions. Services revenue fell by 1.2% from last year due to lower demand for technical consultants to support project deliveries. Other areas, such as managed services, showed steady rates of growth. While total revenue declined, gross margins increased from 29.9% to 31.5% due to a higher proportion of software in the revenue mix. As a result, gross profit was in line with last year at 2.6 billion krona. When we look beyond the year-over-year comparison, the longer-term demand trend remains positive. Over the two-year period from Q2 2022 to Q2 2024, ITEA's revenue has increased at a compound annual growth rate of 5.1% per year. and gross profit increased at a compound annual growth rate of 9.3% per year. During this two-year period, hardware revenue grew by 2.8% per year, software revenue increased by 16.1% per year, and services revenue grew by 9.3% per year. ATEA remains on a solid long-term growth trajectory, but with exceptional growth in Q2 last year and a return to a normal long-term growth trend line in Q2 2024. We'll now take a closer look at the revenue and profit development across the countries in which we operate. Matteo's businesses in Sweden and Denmark were most affected by the decline in networking shipments compared with last year. In Sweden, revenue fell by 11.1%. Hardware revenue was down 14.8%, with the entire decline attributable to lower shipments of networking equipment. Services revenue also fell due to lower demand for technical consultants to support project deliveries. due to lower revenue and flat operating costs, EBIT in Sweden was 106 million Swedish krona, down from 152 million krona last year. In Denmark, revenue fell by 3.8%. The Danish business had solid growth in sales of software and services during Q2, but this was not enough to offset lower sales of networking hardware. With lower revenue and flat operating costs, even in Denmark was 9 million Danish krona down from 17 million krona last year. In Finland, revenue fell by 2.9% from last year due to lower sales of hardware. Attea Finland had very high hardware deliveries to public sector customers in Q2 last year during a major reorganization of the health care sector. With lower product revenue, partly offset by growth in services, EBIT in Finland fell by 11.1% to 3.4 million euro. Despite lower shipments of networking equipment, Attea's businesses in Norway and the Baltics saw higher demand and delivered solid growth in operating profit. Attea Norway had revenue growth in all business lines with particularly strong growth in software. Demand in Norway is picking up in both the public and private sectors. As a result, EBIT grew by 20% to 97 million Norwegian krona. Atea Baltics had major project deliveries to public sector customers in the second quarter, particularly within the defence sector. In addition, the managed services business continues to perform well. Based on growth in these areas, EBIT and ATEA Baltics increased by 9.9% to 1.5 million euro. In total, ATEA Group had an operating profit of 243 million Norwegian krona in Q2 2024, compared with 291 million Norwegian krona last year. This is based on a flat trend in gross profit and a 1.4% increase in operating costs. Total headcount at Atea was down about 1% from last year. Now we're on our cash flow and balance sheet. Atea's cash flow from operations was an inflow of 665 million Norwegian krona in the second quarter of 2024, compared with an inflow of 340 million Norwegian krona last year. The cash flow improvement was driven by a reduction in the working capital balance compared with the end of last quarter. At the end of Q2 2024, Attea had a net debt of 84 million Norwegian krona, as defined by Attea's loan covenants. This corresponds to a net debt EBITDA ratio of effectively zero. Attea's net debt balance at the end of Q2 2024 was 4.7 billion Norwegian krona less than the maximum allowed by its loan covenants. Attea has a strong balance sheet and significant additional debt capacity before its loan covenants would be reached. That concludes the presentation of the numbers. I'll now hand the podium back over to Steinar to discuss the outlook for Attea's business for the remainder of 2024.

Thank you, Robert. Let me start by going back to the four revenue drivers or growth drivers that we touched on in Q1 and have spoken to many of the analysts and investors about over the last 12 months. First, the defense sector. We absolutely have started to see that the defense and in our part of the world, influenced heavily by NATO, have started to invest. But we also see this happening in a different scale in the different countries. If you look at Norway and Finland and the Baltics, the growth in defense spending with Atea is in the high double digit. If you look at Sweden and Denmark, the investments have not started to grow yet. And you can also see this partially in our hardware numbers in these five different geographies. IT security is becoming more and more important as we move into an even more digital world. This, of course, is also influencing the numbers in the defense sector, but also, of course, with every organization. We believe that the next three to five years will see a heavy growth in cybersecurity solutions, and a lot of them being managed by a vendor like Atea. The NISTU directive will also force organizations to make this in a more professional and more documented way. And so we still feel that this is one of the really good growth drivers for the next period. The Windows 10 end of life in October year from now or introduction of Windows 11 have started to happen. But as we've said many times, most of our customers wait longer than what we would like them to do. But we do see a lot of projects coming in this fall, which will drive consultancy, but also hardware exchange, as a lot of the PCs cannot run Windows 11. We also see the vendors, both Microsoft with the operating system, but partners like Dell, Lenovo, and HP invest heavily to get the customers to more rapidly move into an exchange. AI is an interesting area. If we go back some months, it was the only thing that everybody talked about. As normally, when something like this happens, we see the technology hype and we've seen and felt that through the AI hype curve. We now see more tangible projects happening, and we will see that increasing over the next many, many years as AI will stay with us as long as we are here. As Robert touched on several times, the networking business was fantastic when the supply chain eased a year ago or 18 to 12 months ago. It is still strong. It's just back to a more normal level and networking will become even more important for all these four drivers as we move into second half and 2025. As we cut this in a little bit different angle, we'll see on the different countries. Norway had a very strong Q2 and actually a very strong first half of this year with growth on revenue and EBIT. There is no reason for that not to continue. As just mentioned, several of the growth areas from technology have kicked in in Norway, especially the defence. Consulting is a little bit weaker and for first half is flat and we expect that to pick up a little bit but still being the weaker side of the business. Sweden was definitely the part of Q2 that disappointed. Sweden have delivered over the last many, many, many years, and therefore the surprise is bigger. But it's important to say that we have higher win rate and higher booking than last year. And so the backlog has grown by approximately 350 million through Q2 in Sweden. We believe that we'll get back to growth as we move into the later part of second half of 2024. Denmark showed improvements and the ski contracts are starting to deliver. This has been a slower process than what we expected, we have to admit. But we do see it started moving and it will heavily influence the business in Denmark in second half and the years to come. In Finland, we still see, if you look at this in a longer perspective, a strong development where Finland is becoming more and more similar to Norway and Sweden, both in market share but also in content, as services business is growing faster than in many of the other countries. The defense sector is also influencing us more and more every day. And there is no reason when you see the budgets that that will stop in the coming years. Very proud of what Finland had done over the last five years. So keep up the good business. Baltics, the same. And of course, being the closest to the war in Ukraine from a position point of view, the defense and security sector in the Baltics have been strong since the attack and the war from Russia started. It's stable, and that is how we predict it to be also in the rest of this year and next year. So there you have it. A first half a little bit influenced by the unpredictable situation that we are all a part of. A revenue of 16 billion, down approximately 9%. A gross profit of 5.2 billion, about flattish. An EBIT where we miss our own expectations by 40 million on the 500 million we actually did make. So a good first half, but a little bit behind where we expected it. Our job is to bring that back in second half, and that is what we plan to do when we enter a half year where we expect growth to come back to what we have seen over the many years between 5 and 10%. That concludes the numbers for the Q2 presentation, and we move into a Q&A.